Fed agency MBS purchases to begin within days

The purchases will start "in early January", the Federal Reserve Board said. Four investment managers - BlackRock, Goldman Sachs, Pimco and Wellington Management - will have up to $500 billion to spend on agency fixed-rate MBSs by the end of June this year. "The programme is being established to support the mortgage and housing markets, and to foster improved conditions in financial markets more generally," the Fed said.

The programme was originally outlined on November 25 - the Fed initially bought $100 billion in agency debt through a series of auctions, saying it aimed to begin buying MBSs "before year-end", once it had selected investment managers. A custodian for the MBS portfolio is yet to be named.

Yields on agency bonds have fallen steadily over November, with Fannie Mae two-year bonds dropping from 2.328% on December 1 to 1.328% today, representing growing confidence in continuing buybacks. But the mortgage market has so far showed no sign of recovery: according to a December 31 report from Freddie Mac, 30-year mortgage rates averaged 5.1% at the end of December, a record low.

See also: Fed opens $800 billion war chest to aid securitisation recovery